Exxon Still in Climate Denial Despite Shareholder Calls for Strategy
In December 2015, 195 nations reached agreement at the 21st Conference of the Parties to the UN Framework Convention on Climate Change (COP21) to limit global average temperature rise to well below 2 degrees Celsius, with a stretch target of 1.5 degrees Celsius. The Paris Agreement went into effect on November 4, 2016, and requires signatories to submit progressively stronger Nationally Determined Contributions (NDCs) every five years seeking to restrict warming to well below 2 degrees.
ExxonMobil noted the Paris Agreement’s new goals in its 2016 10-K and states its projections are consistent with the signatory NDCs. However, ExxonMobil did not acknowledge that COP 21 aimed to keep warming significantly below 2 degrees Celsius, and that to reach that goal reductions beyond current NDCs must occur.
Subsequently, in the wake of Paris, the New York State Common Retirement Fund and the Church of England jointly filed a resolution requesting that Exxon analyze the impact on its operations of a prospective radical reduction in greenhouse gas emissions. Scores of major investors in the U.S. and Europe joined the initiative, representing over $10 trillion in assets under management
The passage of our resolution at Exxon’s 2017 AGM by a more than 62 percent majority sent a shockwave throughout the industry, marking a monumental shift on climate disclosure among fossil fuel companies and their investors. It showed that investors will wait no more for boards who fail to grasp the speed of the energy transition, and that they will go against board recommendations when companies fail to meet the new climate risk disclosure norm of 2-degree stress testing. The clear message is companies must respond to the Paris Agreement.
Early this February, when Exxon released its 2-degree Paris scenario report, we welcomed it as the most complete disclosure on climate change impacts from the company to date, and it offers a baseline for ongoing shareholder engagement. That said, the report has too many generalizations and too few specifics on how Exxon plans to participate in a low carbon economy. It relies on optimistic assumptions of undiminished growth in fossil fuel demand. Further, the company still has still not presented a detailed analysis to investors of how its own portfolio performs under a 2-degree or less scenario. Performing a proper analysis would critically inform a business strategy that meets ExxonMobil’s objective of increasing energy access to the world’s poorest without conflicting with the Paris Agreement. Going forward, we will discuss the report with Exxon officials, and will continue to push it and others to decarbonize—invoking support from the large majority of Exxon’s shareholders that joined us to support the 2017 proposal.
Many leading companies have endorsed 2-degrees scenario analysis favored by the Financial Stability Board's Task Force on Climate Related Financial Disclosures—including BP, ConocoPhillips, Royal Dutch Shell and Total—and, more recently, Duke Energy, Dominion Energy, DTE Energy and PPL. Major asset managers like BlackRock and State Street Global Advisors also want these disclosures. And keep in mind that the credit markets do, too; Moody’s Global Ratings includes low demand scenarios in its ratings analysis of companies in high-risk sectors such as the energy industry.
This proxy season, in addition to refiling our 2-degree scenario resolutions with Dominion, Duke Energy, and DTE (now withdrawn after agreements to conduct the analysis), we are expanding this initiative to five additional major portfolio companies—Chesapeake Energy, Great Plains Energy, SCANA, Southwestern Energy and Westar. These companies should fully evaluate and disclose to investors how they will transition to a low carbon economy.
Director - Corporate Governance State of New York, Office of the State Comptroller